Group Project $$ A REAL LIFE BUSINESS CASE

Having completed your MBA, you have joined as Area Sales Manager of a small city. You have only one distributor. Let us have a look at the distributor$$s status when you took over:

NO$.$ OF OUTLETS

NO$.$ OF ROUTES

NO$.$ OF UNITS

$($Salesman $+$ Driver $+$ Delivery$)$

FREQUENCY TURNOVER

Local $357+$ Van $93=$ Local $9+$ Van $3=$ Two

Weekly to all outlets $($F$4)$ Local market $43$ lac $=$ Van Market $17$ lac

Total $450$ Total $12$

$60$ lac

Average calls per day per unit are more than $40.$ Hence in most of the days the units are unable to cover all the outlets of the routes. You found utter dissatisfaction amongst customers and competitors are gradually becoming stronger for better service. Many customers started buying products from the nearby wholesalers. The distributor is gradually losing control over its retailers; average order size and productive calls are coming down drastically.

You revamped the whole territory and enlisted many outlets which were not covered by the distributor. Here is the post revamping status

NO$.$ OF OUTLETS Local $606+$ Van $429=$ Total $1035$ EXPECTED TURNOVER Local market $62$ lac $=84$ lac

Van Market $22$ lac

$1.$ One ready stock unit $($comprises of Salesman $+$ Driver $+$ Deliveryman$)$ can cover maximum $32$ calls in local market & $26$ calls in van market $($as van market is far away from the main city area hence it takes much more transit time than the local market$)$ to do justice with the customers

$2.$ Average working days per month for each unit is $24$ days $(6$ days$/$week$)$

$3.$ Top $107$ retail outlets of local market deliver $35$ lac $($out of total $62$ lac$)$ businesses and needs at least bi$-$weekly coverage $($F$8).$

All other outlets needs weekly coverage

EXPENSES

$$ Warehouse Cost$/$Month:

$$ If the warehouse is rented:

$$ Unit Expenses$/$Month:

$$ Fuel Cost$/$Day$/$Van:

$$ If the Van is on hire:

$$ Merchandiser$$s Salary:

$$ Warehouse Manager$$s Salary:

$($F$4)$

EMI on loan $18000/-+$ Electricity $3000/-$

Rent is$.26000/-$ per month $($Electricity included$)$

Salesman $18000/-+$ Driver $15000/-+$ Deliveryman $12000/-1200/-($on an average$)$

$4300/-$ per day $($Driver and Fuel included$)$

$17000/-$ per month

$18000/-$ per month

$1.$ Gross margin of the distributor $12\%$; expected net margin$/$month $($after all costs covered$)3\%$

$2.$ Distributor purchase stocks cash on delivery. Average stock holding is half month$$s turnover. $70\%$ of total investment is

borrowed on $12\%$ annual interest rate

$3.$ The distributor has to give $1$ week credit to top $107$ outlets respectively

$4.$ Top $107$ retail outlets deliver $35$ lac $($out of total $62$ lac$)$ businesses. Hence the Distributor offers a non$-$reimbursable discount

to top $40$ outlets $(3\mathrm{.}5\%$ on $18$ lac turnover$)$ and to next $67$ outlets $(2\%$ on $17$ lac turnover$)$ from his own profits

$5.$ Top $107$ outlets also needs Merchandising support bi$-$weekly. A Merchandiser can work maximum $10$ outlets per day

$6.$ In order taking model $($Salesman takes order followed by delivery$)$ can cover maximum $37$ calls in local market & $30$ calls in

van market. In order taking model the Salesman needs to visit two days in the same market $($order day and delivery day$).$

Order taking has an advantage of zero cancellation whereas $12\%$ of target is always missed on ready stock coverage.

$7.$ Company$$s gross operational margin $15\%$ Target net margin is $8\%.$ Longer the intermediaries higher the cost to serve.

Before getting into the project, all the groups need to analyze the following two points as the background:

$$ Calculate expenses $($cost to serve$)$ and profits$/$month of distributor before the new outlets enlistment.

$$ How many routes to be planned for optimum coverage of $1035$ outlets? Develop number based deployment plan $($How

many units and why? How many Sales persons, merchandisers, drivers and deliverymen are required?$)$ Groups $5$ & $10$ & $15$

$$ Calculate expenses $($cost to serve$)$ and estimated profits$/$month of distributor if the distributor does not operate vans in van

markets and build own infrastructure in those van markets; e$.$g$.$ the distributor will cover all $429$ outlets by:

$1.$ Renting three small warehouses in these van markets $($average rentals $7000/-)$ but the original warehouse

requirement will be $70\%$ of the initial space

$2.$ Three Warehouse Manager cum Sales Person salary $25000/-$ per month for each

$3.$ Three deliverymen salary $17000/-$ per month for each. No driver, fuel or van costs as the deliverymen will deliver the

stocks in handcarts

$4.$ As this is Distributor$$s own infrastructure distributor doesn$$t give any discount to anyone, hence no reimbursement.

$$ What are the advantages and disadvantages of the distributor and company with this route$-$to$-$market model?